Category Archives: Austrian economics

Amazon welfare?

Tucker Carlson, the sometimes libertarian leaning Fox News pundit, is either a masterful troll or eminently confused about what the word “free” in the phrase “free markets” means. Last week he started pinch-hitting for Team Bernie when he joined Bernard in lamenting the “indefensible scam” of Amazon “offloading” payroll costs onto the taxpayer.

According to Carlson “many” Amazon employees are on welfare. This is the modus operandi of all who entreat the state to take action against some perceived societal ill. This unqualified, uncorroborated assertion is all the pretext needed to initiate action. How many is “many”? Well even according to Snopes this assertion is on flimsy ground. It is based on a mere estimate of the number of Amazon workers in just one state (Ohio) and indeed that number hardly qualifies as many – 11.8%. I suppose 600 or so workers in one auditorium would look like “many,” but within the context of the entire workforce (even assuming it extrapolates to all states) 1 in 10 is hardly “many”.

Carlson doesn’t really suggest a solution to the problem, leaving the mechanics of that process up to Bernie (100% tax on Amazon for any welfare used by employees – I guess the $15 billion in taxes Amazon paid last year isn’t quite enough to cover their “fair share” of welfare). One is left with the assumption that Carlson, like Sanders, would like to see some sort of government action to fix this “problem.” Carlson claims although conservatives are all for free markets, this market is not at all free. According to Carlson it is a monopoly (and we all know monopolies are bad – except when that monopoly is the government itself) that achieved its status via government regulation. That may be true, however that is a pretty bold claim given that Carlson provided no evidence for it. I’m unaware of any government regulations that Amazon or Walmart could have used to their benefit, although I would not be at all surprised if that were true to some extent. Retail just doesn’t happen to be one of those more highly regulated and monopolized industries such as pharmaceuticals, banking, or healthcare (where government regulations create artificial barriers to entry thereby diminishing competition and thus reducing supply which in turn drives prices skyward).

What both Sanders and Carlson miss in their missives is that the solution is not more government regulations to fix the consequences of prior government regulations. The solution is to remove government from the equation. If companies are benefiting from government regulations or subsidies, then eliminate them. If companies are able to pay lower wages to some employees because said employees are also being paid a wage by government (through welfare) then eliminate the welfare. You can’t hand out a bunch of free money to people and then expect that to not factor at all into their determination of the wage they will be wiling to accept. If you need $20/hour to get by and the government is paying you the equivalent of $10/hour in food, healthcare and housing welfare, then all things equal you are going to be much more willing to accept a $10/hour job.

As an employer myself I’ll let you in on a little secret. Employers don’t set wages. You do. Or rather groups of you do. Maybe you want $30/hour but if everyone in your working-skillset-peer group will work for $20 then why pay you $30/hour if there are hundreds of others more than happy to work for $20/hour with the same skillset as you. I’m sorry if you are a single mom raising 3 kids and working an entry level job but that is not your employer’s fault and your employer has no obligation to pay you more because you need it when there is a long line of single teenagers with the same skillset as you willing to work for a lot less. It is extremely disingenuous to lambaste a company for not paying its workers enough merely because you found one example of an unlucky individual who can’t get by on a salary that is more that enough for thousands of others.

Being mad at Amazon or Walmart for hiring people in a welfare-backed society is like being mad at them for using roads to deliver products or the postal service to send mail. Here’s a novel concept: if you want to eliminate free-riding effects for services stop paying for things with taxes (which socialize costs in a way that will always benefit some to the detriment of others) and bill only when services are actually used.

 

Fallacies

Just as the warm, moist air of late summer engenders the destructive fury of hurricanes, so too do these storms bear the perennial fruit of economic ignorance. Like clockwork the talking heads either eagerly forecast economic prosperity or decry the mendacity of the evil price “gouger.” Or both. The former is the classic example of the broken window fallacy, which like a case of herpes, will never be fully expunged from humanity’s collective consciousness. The error lies in focusing on seen benefits while ignoring unseen harm. We are implored to consider the benefits of jobs that will be created as we set about rebuilding lost homes, towns, and infrastructure. But this economic activity is not enhanced; rather merely diverted. All the money spent on rebuilding would have, absent the hurricanes, been spent on other goods and services. It is those markets and industries that will in turn see economic decline as fewer people spend in those areas. Even if argued that the rebuilding funds come exclusively from the savings coffers of insurance carriers therefore it wasn’t going to be used anytime soon, that still does not change the economic dynamics. A huge influx of “new” cash competing for a fixed amount of supplies does nothing but cause prices to rise for everyone else (e.g. building supplies will be in higher demand therefore all users of such supplies nationwide will experience higher prices). These higher prices mean, again, fewer dollars to spend on other goods. The only sense in which one could argue that net economic activity increases is if we assign no value to leisure. Certainly if one works 12 hours a day rather than 8 to both rebuild what was lost and maintain what one still has, then output is indeed greater. But is that the world we want to live in, where we sacrifice leisure in the name of economic output? Why we don’t need a destructive storm to achieve that, just pass a law enforcing a 16 hour work day and we could double GDP overnight! Destruction is not the path to an economic free lunch. Everything has a trade-off. The only path to prosperity is through savings, capital accumulation, and investment of that capital toward avenues that make production more efficient (i.e. cheaper).

The price gouger fulfills a valuable economic role, namely the rationing of constrained supplies in direct correlation to need. The feedback is immediate and perfect. There is no need for the imprecision of someone overseeing how much has Person A bought in such and such time period if rationing is imposed by pubic or private diktat. This issue is not so much of a fallacy since people do generally understand principle that if supply goes down prices will go up. Rather, it is more of an issue of emotion; each person’s barometer of what a “fair” increase amounts to varies. The fallacy is in believing that someone charging an “unfair” amount deserves to be thrown in a cage. As much as people would like to redefine words, “victim” does not describe someone who paid more than they would have preferred. So, no victim, no crime and thus any laws against price “gouging” are themselves victimizing when those with a true need find nothing but empty shelves. Trading willfully unobserved harms for spurious benefits leaves us all vulnerable.

“Mr. Gorbachev, give us this wall”

Throughout Trump’s campaign he repeatedly promised that “we” would build a wall and that Mexico would pay for it. The details of that boast were conveniently omitted. But class is now in session and the homework is due, so at long last we have been made privy to his “secret” method of getting Mexico to pay for this wall: tariffs. Trump plans on imposing a 20% tariff on imported Mexican goods coming into the US. The proceeds are earmarked for paying for said wall. There’s just one problem with this little scheme of course: it won’t work, or at least not the way Trump imagines. In other words, as with all government actions, there will be unintended consequences. One of the central tenants of economics is that incentives matter. Closing a door just means now the window doesn’t look so bad. Like rats from a sinking ship, there are numerous routes to avoid the tariff. To offset the tariff Mexican exporters may raise prices, which of course means US buyers will shoulder the cost (although magically increases in minimum wage never incline one to increase prices). But higher prices mean US buyers may then opt to forego the purchase or to seek alternative goods; the net effect being no tariff earned and decreased sales for the Mexican company employing, you know, Mexicans (homework assignment: what effect might increased Mexican unemployment have on the demand to enter the US looking for work?). Or if the Mexican company decides to absorb the cost then that means they’ll either have to cut costs by potentially scaling back their work force or slowing the rate of hiring – all of which puts more Mexicans out of work (again see homework assignment above). The more you turn up your stereo to drown out your neighbor’s music, the more he does likewise in a perpetual game of one-upmanship until you both go deaf.

The immigration “problem” is one of positive feedback. Actions designed to decrease an effect actually make it grow. The irony here is that Trump of all people doesn’t see the problem. He is quite fond of blaming China for harming the US economy and putting people out of work by flooding the US market with cheap goods. However, he fails to see the US has been doing the exact same thing to Latin America for decades. That area of the world is less developed and so depends much more on agriculture production to support its economy. Any factors (such as cheap imports) in that agricultural market will have an outsize effect in that region. The US has a long history (since the depression) of agriculture subsidies to US farmers. Subsidies lower the cost of US agricultural products, allowing US farmer to export heavily into the Latin American market where local farmers can’t compete. That darn NAFTA! Yes, NAFTA enabled cheap imports in both directions. These imports had the obvious effect of putting them out of work whereupon they are left with little choice but to move to where there is a demand for low skilled labor – the US.

The inconvenient truth is that the solution to most of the immigration “problem” is to simply end all agricultural subsidies. But no, we’d rather scratch our heads as to why so many keep coming here, shrug our shoulders, and then set about building a wall to keep “them” out. Farm subsidies have become such a political lighting rod in this country that it is actually easier to subsidize foreign farmers (the US sends subsidies to Brazilian cotton farmers!) than to scale back subsidies to our own farmers.

If Trump really wants to stem the tide of Mexicans entering the US he needs to make Mexico great again – great enough that their economy becomes a magnet to all expatriates, drawing them home to where the jobs are. Perhaps Carrier should build that Mexican plant after all.

A Kontradiction

A recent Washington Post article purports to bail Paul Krugman (New York Times columnist and Nobel-winning “economist” aka water boy for Hillary Clinton and the DNC) out of a glaringly breathtaking contradiction. Krugman’s 180° flip involves his sudden hawkish attitude toward budget deficits whereas when it looked as though Clinton’s coronation was imminent last fall it was “spend baby spend” time. A one Matt O’Brien with the Post now tries to rescue Krugman from his own Kontradiction (def. Kontradiction: the fairly regular phenomenon whereby Paul Krugman supports the exact opposite of something he previously wrote while himself remaining unaware of his own hypocrisy). For a complete takedown of Krugman on this issue listen to ContraKrugman.

The core of O’Brian’s defense of Krugman’s reasoning is that at a Federal Funds rate of 0.25% government borrowing exerts no upward pressure on interest rates (because the private sector is not borrowing). But at a rate of 0.50% now magically the reverse happens; more, not fewer, businesses are interested in borrowing at a higher rate (?) and so government borrowing will exert upward pressure on rates and crowd out private borrowing. So because rates are today a hairs-breadth higher than last fall a flip on deficit policy is warranted. The special pleading is strong with this one. His argument only works if you carve out this nonsensical exception to the normal laws of supply and demand. Government borrowing at any interest rate will crowd out the private sector and cause rates to rise. This doesn’t magically change the closer one gets to a rate of zero.

However, that is not the most inane contention in O’Brian’s article. He states:

“If businesses won’t borrow even when interest rates are zero, the government can do so without having to worry that it’s using money the private sector wants.”

Let’s just tick off everything wrong with this statement. Businesses are still borrowing; to suggest otherwise is dishonest to put it mildly. Second, the Federal Funds rate (0%) is reserved exclusively for interbank overnight loans at the Federal Reserve. So no, businesses were not stupidly passing up 0% rate loans. Lastly, government borrowing would impact money the private sector is competing for even if somehow the government was the only borrower. Borrowing equals taxation. Although one-half of the borrowing equation is voluntary, the other unseen half (repayment) is not. This is a classic case of Bastiat’s “seen and unseen”. Every dollar someone lends to the government is one dollar less they have to spend elsewhere. It shifts spending from those industries otherwise favored by individuals and toward those favored by government. Although the individual lending favors investment, their investment dollar is still directed to government ventures rather than private ones. Whether you agree or disagree with how the funds are redirected is irrelevant, the fact of the matter is it occurs, therefore the private sector is impacted. The next unseen effect is loan repayment. Government bonds, and the interest they earn, can only be paid back by either (a) increased borrowing or (b) increased taxes. To the extent more of (a) occurs than (b) debt will skyrocket into a death spiral. This is our present situation. But if (b) is used to return funds then obviously all we have done is shift the tax burden from the present into the future. Future taxpayers must then support themselves and us.

I agree with 2017 Krugman. Deficits do matter. Deficits are an immoral act of violence. Deficits are the product of borrowing and borrowing is political cowardice. It takes no courage to give your constituents gifts that their grandchildren will have to repay. Government debt is even more morally repugnant than taxation. At least with taxation the present generation must bear the burden of the policies it puts in place. If the burden becomes too great, then democratic methods (in theory) will push for a change in policy. But borrowing unfairly shifts our burden onto a generation that never had a voice in the decision. Borrowing breaks the democracy feedback loop and permits unlimited dumping of the costs of current policy onto the future. There is so much concern over how our actions today affect the climate for future generations but ironically no concern whatsoever how our spending today will impact the standard of living for future generations who are forced to repay our profligacy. But I suppose Krugman would find no Kontradiction there.

In Defense of the Gouger

There was a recent disruption in the supply of gasoline to Georgia due to a ruptured pipeline. The resulting shortage was the predictable result not of the constrained supply but rather busybody price controls imposed by the Governor. The universal support by the public for the Governor’s actions betrays a breathtaking ignorance of basic economics. The law of supply and demand cares not one whit for your desire to maintain a constant supply of a good while forcing its price down.

Not only should “gouging” be “legal,” but in fact welcomed. Gouging ensures a supply of a good even when supplies are constrained. For example, gouging of event tickets ensures that you can get a ticket at a moment’s notice. Although the price is high would you prefer high price and ticket vs. no ticket? Rising prices due to increased demand is the market-natural rationing system. If prices stay low, then no one cuts back and the good is quickly consumed. High prices incentivize conservation so a given supply last longer and is available to those that desperately have a need of it. Hypocritically the state blocks private business from such practice but happily engages in it on a regular basis in the PeachPass toll lanes of I-85. I have personally seen prices go from 7¢ to over $11 for the same stretch. Of course this is a good thing, and the state knows it, so it is rather disingenuous for them to block it in other arenas.

The most common objection is what of the station that raises their prices during the day on the mere rumor of a disruption? They’ve already paid for the gas in the tanks in the ground – how can they possibly justify reaping these windfall gains? Easy. The higher price (and profit) ensures the station itself can buy more from their supplier at the soon to be higher prices. If the gas in the ground cost 25 and is sold for 30, then the station takes from those sales 25 and buys the same amount again. But if they are not allowed to raise prices and it soon will cost 100 to refill the station’s tanks, then they can only buy 1/3 of what is needed and so will run out that much faster each time. If they can charge 120, they can take 100 and fully replenish the tanks ensuring a steady supply.

A tertiary benefit of high prices is as economic alarm. It signals too society that resources are more urgently needed where prices are high. People then swoop in to access that higher profit potential and so the supply immediately begins to swell and prices fall. So even when such “gouging” occurs it will not last long as the market corrects itself naturally. No need for men with guns running around threatening people.

The usual objection here is that people can’t afford the higher prices. Please. No one is going to be filing bankruptcy because they spent extra on gas for a week or so. The above average amounts are no more than typical monthly discretionary spending (movies, eating out, etc.) The prospect of possibly foregoing a few luxuries doesn’t seem like the sort of essential human right that rises to a compelling state interest. Indeed, state intervention only makes matters worse – when it comes to economics, there’s no free lunch.

Can Buy Me Love

There is something eerily similar to the behavior of politicians competing for votes and that of divorced parents competing for the love of a child. There are two strategies deployed in this endeavor. Tear your competitor down with insults or build yourself up through gifts. With either approach there is little daylight between Democrats and Republicans. With Trump’s recent speech directed at working women we see that the difference between Democrats and Republicans is in degree, not kind. Both are quite willing to violate the rights of the individual upon the altar of compulsory collectivism, because you know, feelings. Trump promises six weeks of paid leave for working women. Clinton promises twelve weeks of paid leave for anyone caring for someone. Why so stingy though? It’s not their money after all. Why not promise a year of paid leave? Or two, or ten? Oh, that’s right, because of course we all know there are thresholds of cost that no business could bear. Let’s be reasonable after all. So in the pursuit of reasonableness our wise overlords-to-be dial back the burden-meter until some, but not all, business could manage to survive. Since only 12% of companies currently provide paid family leave we can draw the reasonable conclusion that this is a fairly expensive benefit. Were it not expensive then naturally every business would provide it (duh). And what adjective describes somebody that can afford really expensive things? That’s right: wealthy! So what kind of sorting might we expect to see if a large expense is imposed on large and small businesses alike? That’s right – smaller businesses will shut down leaving only the larger wealthy ones behind. Likewise the (artificial, government imposed) barrier to entry for new competitors will be so high that none will pass. I can almost understand Trump proposing this. As a large business owner it confers a competitive edge to his corporate interests. But the Democrats, those supposed champions of the “working men and women” leading the charge against the evil one percenters, they are in fact giving those ultra-uber rich businesses the greatest benefit imaginable: eliminating sources of competition. The irony is I’m sure Bernie would have supported a similar mandate while remaining blind to the fact he’s helping the very businesses he decries.

Such mandates further the goal of augmenting dependency on the state by slowly dissolving agency of the individual. The state views the employee as being too weak and stupid to make the best decision for themselves. If an employee would prefer more pay and less leave time, that’s not allowed. If an employee would prefer a higher wage in exchange for flexible working hours, that’s not allowed. If an employee would prefer having a job at lower wages vs. having no job at all, that’s not allowed. Mandated paid family or maternity leave is no different than a mandated minimum wage (i.e. price fixing). All benefits boil down to a monetary cost. If you mandate paid leave (the seen benefit), then you’re going to have to pay for it by subtracting from somewhere else (the unseen loss). That could be the rollback of non-mandated benefits, smaller bonuses and raises, or fewer workers hired. The last is most insidious as it leads to increasing unemployment despite no one losing their job. It further increases the work-load (and stress) on existing employees. When that happens many would gladly trade a lower wage for a smaller workload and less stress – but – that’s not allowed because children can’t make those sorts of decisions. Only the parents – the state – are wise and responsible enough to make those kind of decisions. Thank you wise and omniscient Dear Leader.

 

Capital Day

Labor Day, according to the US Department of Labor is “dedicated to the social and economic achievements of American workers” and as a “national tribute to the contributions workers have made to the strength, prosperity, and well-being of our country.” While true, there is a major missing component in this tribute: capital. Show me a worker laboring without any contributions from capital and I’ll show you naked primitives feeding off berries and dead carcasses. Every advance in the standard of living is built on a foundation of both labor and the deferred consumption (capital creation) that permits the creation of tools to augment laboring efforts. Holidays should be deployed to remind the populace of that which normally escapes public notice. This is exactly why we need a “Capital Day”. Although capital surrounds us, it is too often ignored, like the air we breathe, and like air, our society would be dead without it.

The fact that most of you are now probably scratching your heads and wondering what possible role capital has played is all the more reason to have such a holiday. Yes, workers perform the labor needed to drive the engine of commerce, but they do not do so in a vacuum. Who paid for the building that they work in? The equipment and tools they use? Their wages? No one asks these questions. It is somehow assumed these are exogenous resources simply laying about waiting to be donned by the heroic laborer.

No, they are not manna from heaven. The capitalist provides them by virtue of having deferred consumption and thus saving resources. That savings (capital) allows them to pay others to build the tools needed to enhance the capacity and efficiency of the worker in their role as laborer. The machinist creates multiple cars in a day using tools, the material handler moves tons of goods with a forklift, the office worker performs millions of operations a day with their computer, and so on. And when done performing those tasks the workers are paid long before the revenue generated from their labor returns to the capitalist – paying someone for their service so far in advance of revenue generated from that activity necessitates that money, capital, be saved and available. Without capital every newly hired worker would have to wait weeks or months before receiving their first paycheck.

The market capitalist (as opposed to the cronyist political capitalist who partners with government in order to gain advantage) risks all. For every success, dozens more fail and lose everything. Capitalists are not mere fat cats earning a living off the sweat of the laborer – no, they play an important and vital role just as the laborer does. They provide and coordinate the resources needed by laborer to actually labor. It is a partnership, but one where one partner is honored, while the other is at best perplexingly ignored or at worst, reviled. Let us never forget the importance of both, here’s to Capital Day!

Stepping Up to the Plate?

Slow internet. No words invoke greater apoplexy in modern man than these. Oconee County, being largely rural, has suffered through its share of less than ideal Internet connectivity over the last decade. So it is little wonder that county officials recently engaged representatives of Corning Optical Communications to discuss the possibility of wiring the entire county for fiber optic Internet access. As a resident myself, nothing would please me more. However, as an ethically consistent human being, I cannot opt to ignore a little thing like theft even when that theft might benefit me personally.

Inroads to high speed Internet have been slow not because of capriciousness but rather due to simple economics. Investments are made only if the prospect of a meaningful return is sufficient to compensate for the risk involved. What would you say if someone asked you to invest your retirement savings into a project that might yield a payback of less than 1% after 75 years? If you’re unwilling to make such a poor investment, then who can blame the telecoms for reaching the same conclusion. Capital intensive projects like running underground cables for miles and miles only to serve a handful of customers just don’t make economic sense unless those customers are willing to pay hundreds of dollars a month. And since nobody is willing to pay that, it doesn’t happen. Local governments don’t help either as various right-of-way statutes heap unnecessary costs on the process (see OCGA §46-5-1(a) and 48-5-423).

In the meeting, according to the Oconee Enterprise, Administrative Officer Jeff Benko observed that, “…in areas where the private sector has not stepped up to the plate, there’s an opportunity for the government to intervene.” In other words, where my parents have not stepped up to the plate by buying me a Ferrari, there’s an opportunity for my bank-robbing uncle to buy one on my behalf. “Stepping up to the plate” is the economic equivalent of providing something at a false cost because no one is wiling to pay its true cost.

This project was estimated to run about $1400/home served. If everyone voluntarily wrote a $1400 check that would be grand. It would be true democracy, marketplace democracy, in action. Consumers vote their preference every time they open their wallet. But we live with a political democracy as well, so as long as 51 out of 100 people want something, then it’s perfectly acceptable to reach into their neighbor’s wallet and take what is needed. Some might suggest paying for it with bonds is ethically sound as someone is voluntarily lending money to the county. But that logic is specious insofar as the bond must eventually be repaid and the only way to do so is with taxes and as we all know, taxes are theft. Indeed bonds are even more cowardly as they shift the repayment burden onto future taxpayers who have no voice in what is decided today.

Repeat after me: just because it is something I want, that does not make it is ok to use political means to force others to provide it for me.

Dear Mr. President

The White House recently posted an “Email from President Obama: An Update on Overtime” on the whitehouse.gov website. For some reason I was not on the distribution list for that e-mail. Had I been, here’s what I would have said:

“I wanted you to be the first to know about some important news on an issue I know you care deeply about: making sure you’re paid fairly.”

By “make sure” do you mean men with guns will insert themselves into the employer-employee relationship and substitute your notion of “fairness” for ours?

“Tomorrow, we’re strengthening our overtime pay rules to make sure millions of Americans’ hard work is rewarded. If you work more than 40 hours a week, you should get paid for it”

So people that are paid a salary aren’t paid for their work? That’s news to me. Last time I checked a salary covers ALL hours worked in a week, whether that is 25, 35, 40 or 60.

You do realize that there are two sides to this equation – sometimes a salaried worker may work 50 hours in a week and sometimes they may work 30. Regardless, they are paid the same amount each week. Oddly all the focus has been on the hours above forty worked but not on those that have the flexibility to work fewer hours when needed. Over time these fluctuations averages out to a level that satisfies both the employer and employee. There are benefits to both parties to being salaried. Salaried employees have an incentive to work as efficiently and productively as possible. If productivity exceeds both parties’ initial expectations, that can then become the basis to negotiate a raise. But, if one is not allowed to work more than 40 hours in a week (something many employers will now do to mitigate the cost increases) it becomes that much more difficult to justify a higher wage.

People who earn a salary take some measure of pride in that fact; punching a clock is seen as something teenagers do, not professional adults. Earning a salary means your employer is putting their trust in your ability to accomplish the necessary tasks without constant micromanaging. But overtime laws gag the employer and make it illegal for them to treat some employees as adults – they have no choice but to infantilize them with a “non-exempt” (hourly) classification. We (Seachem) have employees that are presently salaried but who stand to lose that status with this coming change. They view it as a demotion. I hope that they, and millions like them, do understand that it is you (and your progressive ilk) that is doing the demoting, come Election Day.

It is peculiar that some businesses can legally sell their wares at a flat rate (cell phone service, gym memberships, satellite TV, all you can eat buffets, etc.) but those who sell their labor are not afforded that same measure of autonomy. It’s almost like the government thinks individuals don’t have the capacity to make the “right” choice and so require a paternalistic helping hand.

“or get extra time off to spend with your family and loved ones.”

No, no you can’t. Read your own statutes Mr. President. What you just described is called “comp time” and that is illegal under the FLSA. At least for private employers and their non-exempt employees it is. “Public” employers are free to engage in this practice. I guess private employers are not as enlightened as their public brethren and so can’t be trusted to fairly give time off in lieu of extra hours worked even if that is what the employee wants.

“It’s one of most important steps we’re taking to help grow middle-class wages and put $12 billion more dollars in the pockets of hardworking Americans over the next 10 years.”

Right, instead of raising taxes on the employer directly, we’ll just raise them indirectly by finding another way to compel businesses to redistribute even more of their profits (wages are on average four-times the size of net profit) to those that bore no risk in earning them. Remember; when a business loses money employees still get paid. But when a business makes money employees expect even more money. Heads I win, tails you lose.

But that $12 billion figure is a pipe dream. These overtime rules changes will not raise worker income anywhere near to what you believe. To the extent it does raise it for some, it will be at the expense of others that are either laid off or that can’t be hired because too much of payroll is going toward paying excessive overtime. What this rule change will do, however, is ensure that America becomes less and less productive as businesses opt to send employees home at 40 hours. Payrolls will remain the same but output will decline. Although this is effectively a raise (the same money for less work) it actually harms both parties. The employee, being constrained to only 40 hours, is now in a weaker position to demonstrate their value. Likewise the employer realizes less output for the same amount of money. On net for the country less work will be done, growth will slow down and we’ll all wonder why the private sector appears to operate more and more like the Post Office or DMV.

Capital investments, which propel improvements to productivity, are the natural method to improve workers’ standard of living. Productivity gains translate into more goods for the same amount of work and income. Effectively everything becomes cheaper and thus more affordable. But these gains have all but been eroded by 40+ years of inflation wrought by the duopolic partnership of the Federal Reserve and Federal Government.

“But after years of inflation and lobbyists’ efforts to weaken overtime protections, that security has eroded for too many families”

Inflation is a 100% government phenomenon. The US Treasury issues bonds to prop up annual budget deficits. The Federal Reserve buys those bonds (directly or indirectly through open market operations) by using money literally created from nothing. More dollars equals more inflation, and the cycle continues year after year. If the government is serious about ending wage and benefit erosion it has the power to end it by ceasing all inflationary policies. It really is that simple.

“One of the many Americans who has been working hard but struggling to keep up is a single mom from Tucson, Arizona, Elizabeth Paredes. As an assistant manager at a sandwich shop, Elizabeth sometimes worked as many as 70 hours a week, without a dime of overtime pay.”

Seen benefit, unseen harm. You really should read more Bastiat. For every worker that benefits thousands more will be harmed by lost jobs, fewer hours, or simply not being hired in the first place. Forcing her employer to pay her more makes about as much sense as raising the minimum wage to $50/hour because you found a single mother with ten children who can’t get by working for $8/hour.

If someone wants to earn more money, then they should enhance their skills and find a new job. Dissatisfaction with low-skill wages is like buying a home by the airport and then being upset about the noise. Demanding changes to overtime or minimum wage laws would then be like adding new noise regulations that would make air travel cost more for everyone; concentrated benefits for some, increased costs for everyone else. Don’t ask others to pay the penalty for your choices.

“When workers have more income, they spend it – often at businesses in their local community – and that helps grow the economy for everyone.”

It is unclear why the economy would grow more if an employee spends money vs. the employer. Is the purchase of one set of goods “better” for the economy than another? I presume this line of reasoning comes from the flawed Keynesian notion that it is consumer spending that drives the economy. This viewpoint of course ignores the fact that consumers can’t buy anything until businesses/employers have first spent money on hiring employees, building plants, opening stores and so on. Consumer spending rests on the bedrock of business spending which itself lays on the firm foundation of savings. The lower the profit, the slower the savings, and thus everything else built upon it. Consumption does not grow an economy. Only savings and investment into capital goods will do that by making it easier to produce more goods with less effort. That is what improves the standard of living for everyone.

“Americans have spent too long working long hours and getting less in return. So wherever and whenever I can make sure that our economy rewards hard work and responsibility, that’s what I’m going to do.”

The fact that a thief can improve his standing at the expense of his victim(s) does not justify thievery as a legitimate means to improve one’s condition. Employers and employees have come to mutually beneficial arrangements that both parties agreed to. The employer is free to fire the employee and the employee is free to quit. No one is forcing these arrangements. There is no rational basis to suggest a disinterested third party has the right to interject themselves in these negotiations and supplant their judgment for the judgment of both parties.

When you remove choice from either party you rob them of their agency to live as independent, free individuals. In short, you turn them into de facto children. We are not children Mr. Obama. We are free men and women. Let us live our lives as we see fit, not as you do.

The Rise or Fall of Socialism

Is socialism on the rise (Bernie Sanders)? Or is it on the decline (Venezuela’s economic implosion, Brazil’s impeachment of their socialist President, Cuba and North Korea’s decades of abject poverty)? To be fair, one could likewise cite the relative success of China, Denmark, Norway, or Canada as proof of socialism’s success. Why the difference? Why are some putatively socialist countries not total economic basket cases whereas others clearly are? To uncover the answer we must understand why some groups of people come together and achieve their goals while others fail. In any endeavor there is a group of individuals who have tight control over the means of goal achievement. This allows them to direct those means so as to ensure an efficient operation that will achieve the desired ends. Does that not remind you of something else? Like say a business perhaps? The reality is that the modern nation-state is simply a really big company, with shareholders (citizens), a board of directors (congress/parliaments) and a president running the show. Unfortunately this is one corporate stock you can’t sell if you disagree with how the company is being run.

So if states are structured as a business, why do some fail and some thrive? For the same reasons any business might fail or thrive. Success entails the optimization of three factors: consent, control, and resources. All factors play a role, however any one of them can overwhelm the others. This is the reason we see very different outcomes in a variety of nominally socialist countries, e.g. Venezuela vs. Denmark. It is not enough to cite Cuba (excessive level of state control) as a failure and therefore close the case on socialism. Were that the case then one would be susceptible to charges that capitalism can’t “work” because sometimes a business goes bankrupt. However it is just as disingenuous for those on the left to cite oil-rich Norway (abundant resources) as proof of socialism’s success. If Cuba had Norway’s oil resources it would be faring far better. Or maybe not, as in the case of oil rich Venezuela which too suffers from excessive state control of the economy and is presently circling the drain.

Countries that exert a high degree of control (totalitarian) over their citizens will always experience less “success” than those that exert little control. Less control means greater freedom to innovate and solve problems from the bottom up rather than the top down. Formerly socialist/communist countries (China, Vietnam) that have embraced the benefits of freedom (that is, free vs. state managed markets) within their borders have seen improved standards of living relative to those that have not (Cuba, North Korea, Venezuela). As a country or business grows in size, efficient control becomes exponentially more difficult. This is due to the Hayekian knowledge problem. Stated simply it is the reason that a family farm runs smoothly but a state run collective not so much. Unfortunately, those in charge don’t realize they lack the appropriate knowledge and thus make sledgehammer style choices that only serves to undermine the endeavor. The solution to the size-control problem is to move toward less control and smaller size through decentralization. Large businesses with autonomous subsidiaries have mastered this problem well.

A critical and often overlooked factor in the success of a state is consent. Without consent the process will be crippled if participants undermine or refuse it. This is a key difference between business endeavors and state endeavors; states always compel those who do not consent to participate. Businesses cannot force people to work for them or for customers to buy their products. Apathy was not an option when it came to the rise of 20th century socialism. The motto of Russia, China, Vietnam, and Cambodia: join us or die. Democracies maintain an illusion of consent that mollifies a credulous citizenry into the quiet acceptance of being ruled. They are better than dictatorships, but not by much, and fall far short of the benefits one would see with true pluralism.

To make America great again we must recognize that while our resources are substantial our size puts us at a disadvantage. The only way to overcome that disadvantage is to loosen, not tighten, the reigns of economic control and to foster true consensual pluralism by permitting those who wish to not participate in the dominant system to work toward building alternatives that will expand, not constrain, choice.